Category Archives: Financial Planning

Don’t Leave Health Care Dollars on the Table

Don’t make the mistake of waiting until the end of December to review your finances. You might not have enough time to take full advantage of some money-saving strategies before the ball drops. Here are some healthy yearend moves you may be able to make.

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Check your deductibles

Many health insurance plans have an annual deductible. If you’ve already met yours for the year, now’s the time to schedule any elective procedures you’ve been considering. If it doesn’t look like you’re going to meet your deductible this year, then switch gears and push any non-urgent visits into next year. That might help youmeet your deductible in 2015.

Max out your benefits

Be sure to take advantage of any benefits your health plan provides you free of charge. For example, it may cover an annual physical and various screenings.

If your employer sponsors a wellness program, don’t wait until the end of the year to check your status. You may be eligible for additional rewards for doing something as simple as scheduling a screening.

Review your FSA

If you have a health flexible spending account (FSA) through your employer, check your balance. If you have more money in your account than you can spend by the end of the year, see if the plan offers a grace period so employees can spend down their funds. Or the plan may allow employees to carry over a certain amount to the next year. Find out if your employer offers one of these options.

Tax tips

If you usually itemize deductions on your tax return, you may want to brush up on the details about the medical expense deduction. You won’t be able to qualify for it until your expenses are over 10% of your adjusted gross income (7.5% if you or your spouse is 65 or older). If you’re close to reaching the threshold, it may influence the decisions you make about elective procedures. You can only deduct unreimbursed medical expenses that exceed the threshold.

 

2014 Business Year in Review

Busy is good. Most small business owners would rather things were too hectic than too slow. As the year winds down, though, let your staff handle the busy-ness while you look at the business — where you are, what you’ve accomplished in 2014 and where you’re headed in the new year and beyond.

Your bottom line

The quickest way to figure out where you are is to check your bottom line. Are you making money? Are profits better or worse than they were last year at this time? Are you meeting your expectations? If not, why not?

business_outlookYour business plan

Change is inevitable. And businesses have a way of outgrowing their business plans. But if you don’t have a current plan, you don’t have a way of measuring your progress. So if you’ve been “off road” without a plan for a while, it’s time to formalize a plan that reflects past growth and sets new goals for the next several years.

Your competition

The more you know about your competition, the better. Who are they? How are they different? How are they the same? Where do you overlap each other? Understanding their business model will help you prepare strategically for possible changes in the marketplace.

Your secret weapon

Your workforce is your secret weapon, especially if you’re in a competitive market. Dedicated, well-trained employees providing top-notch customer service can help put you out front of even the largest competitor. A rich, competitive benefits package will help you attract — and retain — a high-caliber workforce. Health insurance and retirement plans are highly valued benefits. You can offer a variety of other benefits to suit your employees’ needs and your budget. Ask your financial professional for information.

Your future

Do you have a formal succession plan? Are you grooming someone to take over? A well-trained successor could help in the successful — and profitable — transfer of your business. And you can use life insurance to pre-fund all or part of the sale.

When Marriage Ends in Divorce or Separation

The end of a marriage is also the beginning of a new financial life. Reconsidering your financial arrangements — whether or not your income will be reduced — should be a priority as you adjust to your new circumstances. The major issues demanding attention and resolution include the following.

Retirement Issues

  • The QDRO. A divorce settlement often determines how any anticipated future pension and/or retirement plan benefits will be divided. You may receive part of your ex-spouse’s retirement benefits, or your ex-spouse may receive part of yours. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a Qualified Domestic Relations Order (QDRO). If you are to receive benefits from your ex-spouse’s plan, you must follow through on obtaining the QDRO and ensuring that the plan’s administrator receives it.
  • Change of beneficiary. The individual you have named as the beneficiary of your retirement plan account will automatically receive all the funds in your account after your death. A divorce or other agreement generally has no effect on a beneficiary designation. Therefore, you must formally amend the appropriate plan documents to name someone other than your ex-spouse. As soon as your divorce becomes final, you should give your plan administrator a new beneficiary’s name. Also, be sure to change the beneficiary on any IRAs you may have.
  • Adjusting retirement plans. Your financial future may look very different without your spouse. You may be able to improve your lifestyle after retirement by taking advantage of additional current contributions to your 401(k) or other tax-deferred retirement plan. You might also consider contributing to a Roth or other IRA to supplement your employer’s retirement plan.
  • Social Security. Your ex-spouse’s work record may entitle you to receive a benefit once you are at least 62 years old and meet the law’s conditions. So, after a divorce, it is a good idea to call the Social Security Administration to inquire about any benefits you can expect to receive.


Investments 

Le divorceYour new marital status may mean a shift in your investment goals and, therefore, in your investment strategy. Your present assets may be more or less risky than you will want in the future. You should also examine your new living costs to make sure your arrangements are realistic for your income and needs, and to decide how much and how often to invest for the future.

Financial Documents

 After a divorce or separation, a general review of all your financial documents is advisable. In light of your new situation, be sure to examine the following.

  • Estate plan. If your spouse is your heir, you need to revise your will to name another beneficiary(ies). Also, marital status is often a key factor in planning an estate. You should review your present plan with your professional advisor to update it for your new situation.
  • Life insurance. The change in your marital status most likely will require a reevaluation of your life insurance policies and, at the least, a change in your beneficiary designations.
  • Credit records. It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.

Get Professional Assistance

A divorce or separation may give rise to numerous tax issues, and a settlement agreement that reduces taxes may benefit both sides. Professional legal and tax advice is essential as your agreement is being negotiated.

Retire Without the Worry

More than half (54%) of near-retirees say they’re concerned about having enough money to last through retirement. Forty-five percent say they’ll need to work at some point during retirement.* But this doesn’t have to be your retirement story. Following these tips may give you a better retirement outlook.

Be flexible

Retirement10Retiring before you’re financially or psychologically ready can put a damper on your retirement. From a financial standpoint, if you retire too soon, you risk running out of money. Periodically review your retirement investments with your financial professional to see if you’re on track for your desired retirement date. If not, you may have to work a year or two longer, which could make a surprising difference in retirement readiness. Or, if you’re able to, increase contributions to your retirement account by enough now to meet your desired retirement date.

If you haven’t thought about what you’re going to do with your time, you may be at loose ends when you retire. Explore paying and nonpaying options for keeping active before you retire. The Employee Benefit Research Institute found that many retirement-aged people have nonfinancial reasons for continuing to work full- or part-time.**

Have multiple resources

It’s good to have a fixed income source, such as Social Security benefits and/or an employer sponsored pension plan, to help cover basic expenses and variable income sources, such as a 401(k) account, an individual retirement account (IRA) and personal investments. Because these accounts have the potential to increase in value, they may help cushion inflationary price increases. You can use the funds to help cover unexpected expenses and/or pay for retirement living expenses.

Be realistic about retirement expenses

Your expenses may or may not decrease at retirement, depending on the activities you intend to pursue. Ask your financial professional to help you realistically project your future retirement expenses based on your individual needs and wants so you can judge if you’re financially ready to retire.

* Maritz Research Retirement Study, 2013, surveying individuals with less than $500,000 in retirement resources

** ebri.org Issue Brief, March 2013, No. 384

Trusts — Filling a Role in Your Financial Plan

shutterstock_15990961Would a trust help you accomplish some of your financial and estate planning objectives? Trusts can be used to address a variety of concerns, including protecting and distributing your assets, managing taxes, and achieving your charitable goals. The assets in a trust are managed according to your wishes by the trustee you choose.

Not Just for the Wealthy

Trusts are very flexible arrangements and offer many different planning options that can be tailored to fit your situation. Here are some ways a trust can be used for your benefit or for the benefit of others.

You can establish a trust to:

• Manage the distribution of assets to beneficiaries based on criteria you establish

• Manage assets and provide recordkeeping for financially inexperienced beneficiaries

• Provide for management of your financial affairs if you become ill or incapacitated

• Protect financial interests of your children from a previous marriage

• Secure funds to provide for special needs dependents, including disabled children, elderly parents, or other relatives

• Minimize exposure to estate taxes and/or probate costs

• Benefit a charity while still providing for loved ones

• Keep the affairs of a business private and help to preserve it for family members

A Helping Hand

If you do decide to establish a trust, make sure you have confidence in a potential trustee’s ability to properly manage your affairs before you make a selection. You might want to consider naming an institution such as ours as trustee or co-trustee to obtain the benefits of professional management services and an unbiased perspective.

New Once-Per-Year IRA Rollover Rule

In the aftermath of the recent tax court case, Bobrow v. Commissioner, the IRS announced it will adopt the taxcourt’s ruling and issue new Proposed Regulations that will definitively apply the 1-year IRA rollover rule on an IRA-aggregated basis going forward.

ira_rollover_05Under current ruling the Internal Revenue Code (IRC) permits an individual one rollover distribution from one IRA to another IRA within a one year period. Additionally, as provided in Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), the IRS interpreted this statutory limitation as applying separately to each IRA. In other words, the IRS has taken the position over many years that an individual with multiple IRA accounts can apply the rollover rule to each IRA account without having to include the amount distributed to them within their gross income. For example, if you have four (4) IRAs, you can do four (4) rollovers for the year (1-year IRA rollover rule).

However, the U.S. Tax Court held otherwise and the IRS now intends to follow the Tax Court’s interpretation. As a result:

• Beginning January 1, 2015, you will have to include in gross income any amounts distributed from an IRA to be rolled over to another IRA, if you made an IRA-to-IRA rollover in the preceding 12 months, and

• Depending on your age and circumstances, you also may be subject to the 10% early withdrawal tax on the amount you have to include in gross income.

Please note that the above mentioned rules do not apply to transfers such as trustee to trustee transfers or “direct rollovers” wherein an IRA custodian sends the money directly to another IRA without the taxpayer taking possession. Caution is only necessary for those taxpayers considering taking a distribution then rolling those funds over to the same or another IRA within 60 days.

By: Katie Mokry, Accountant

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